The Restaurants Association of Ireland has today expressed deep concern about any increase to the 9% VAT rate for Tourism. The Association has launched its economic impact report by Economist, Jim Power which assesses the impact a 1% increase in the VAT rate would have on the sector.

The food service and accommodation sector currently employs 152,200 people directly and 17,388 indirectly. The Economic Report highlights the inevitability that a 1% increase would cost jobs in the sector. The only question is, how many jobs would be lost? It is not beyond the bounds of possibility that up to 4% of the jobs in the sector could be shed, which would equate to around 6,000 jobs, both part-time and full-time. This would leave rural areas particularly vulnerable, according to Jim Power Economist.

A comparative between 2011 and 2017 demonstrates the advantages to the sector and employment as a whole because of the reduced VAT rate. Between 2011 and 2017, the number of people working in the Accommodation & Food Services Sector nationally increased by 37,800, taking total employment from 114,400 to 152,200.

Key findings from the report include:

Weakening of Sterling & Brexit

Restaurants in general will suffer if visitor numbers from the UK continue to decline due to sterling weakness. Restaurants in the Border counties are particularly vulnerable to sterling weakness as less people will come across the border from Northern Ireland and customers from the South will have a financial incentive to go North of the Border. Restaurants in rural areas all over the country will suffer if indigenous exporters, which are very important contributors to rural economic activity, come under pressure due to sterling weakness.

Post-Brexit the following threats to the Restaurant sector can be identified:

Sterling weakness and its consequences will remain a serious threat if a ‘Hard Brexit’ transpires, indigenous Irish exporters will come under significant pressure.Farming and agri-food businesses are likely to be particularly vulnerable.If rural businesses suffer, the restaurant sector in rural areas will be particularly vulnerable. The Dublin market will be less vulnerable, due to its capital city status.

If the Common Travel Area is not preserved, the outlook for the UK tourism market will become very pressurised. This can be noted when comparing the UK tourist figures from January to May 2016 to the same period in 2017 which saw a decrease of 6.8% in UK visitor numbers to Ireland. If the UK leaves the EU’s Open Skies arrangement, air travel between Ireland and the UK could be adversely affected, with negative consequences for tourism and by implication, the Restaurant sector.

Dollar Weakness

Visitors from North America increased by 21.6% in the first half of 2017. This growth is potentially under threat due to recent weakness of the US dollar against the euro. It is currently trading just under 1.20 against the euro, having been at 1.0384 at the end of 2016. This dollar weakness will damage the competitiveness of the tourism product from US visitors and if dollar weakness is sustained, it poses a significant threat over the coming year.

Wage Pressures

Wage pressures are building in the economy due to a combination of minimum wage increases and market pressures of the labour market. Given the labour intensive nature of Accommodation & Food Services, this sector is particularly vulnerable to wage pressures.

In any consideration of a 1% VAT increase in Budget 2018 the impact on the overall competitiveness of the tourism sector needs to be the key consideration. For many operators, (particularly outside of Dublin) absorbing the 1% increase could be the difference between success or failure. If the 1% VAT increase were to be passed on to consumers, it would seriously damage the competitiveness of a sector that is already coming under significant pressure from currency movements and other cost pressures.

Adrian Cummins, CEO Restaurants Association of Ireland said today, “I am appealing to the Government to think twice before loading another 1% VAT on consumers. This will cause enormous damage to the economy of Border Counties and Rural Ireland.”